A federal appeals court has rejected a major record label's effort to undermine the legal safe harbor provided to user-generated content sites by the Digital Millennium Copyright Act. Under that 1998 legislation, sites like YouTube and Flickr are immune from copyright liability as long as they promptly respond to takedown requests by copyright holders. The safe harbor has become a foundation of the Internet economy, allowing entrepreneurs to build new user-generated content sites without worrying about being held responsible for their users' infringing uploads.

Unsurprisingly, major copyright holders hate the exemption, and they've waged a decade-long fight to weaken it. In 2007, UMG Recordings sued the video site Veoh, making arguments that, if accepted, would effectively neuter the safe harbor's protection for user-generated content sites. The courts have been weighing UMG and Veoh's arguments for the last six years.

Thursday's ruling by the United States Court of Appeals for the Ninth Circuit was a victory for Veoh, decisively rejecting UMG's key arguments. The ruling preserves the broad protections of the safe harbor, but it will be cold comfort to Veoh's founders. Thanks in part to the costs of litigation, the firm was forced to declare bankruptcy in 2010, and is now a shell of its former self.

Dredging the safe harbor

UMG offered several arguments that, if accepted by the court, would have dramatically weakened the DMCA safe harbor. First, the company said the safe harbor only applied to bare-bones Web-storage services. The company argued that because Veoh automatically transcoded users' videos into different formats and made them available for streaming, it went beyond the confines of the safe harbor, which is only available to sites that store files "at the direction of a user."

The Ninth Circuit rejected this narrow reading. "The reason one has a website is so that others may view it," the court ruled. "These access activities define Web hosting – if the Web host only stored information for a single user, it would be more aptly described as an online back-up service."

A service provider is ineligible for the safe harbor if it has "actual knowledge" of infringing activity on its site but does nothing to remove the infringing material. UMG argued that Veoh's decision to have a "music" section on its site without licensing music from any major music publishers was a tacit invitation for users to upload infringing content. But the Ninth Circuit disagreed. "Merely hosting a category of copyrightable content, such as music videos, with the general knowledge that one’s services could be used to share infringing material, is insufficient to meet the actual knowledge" standard, the court held.

The upshot of the Ninth Circuit's ruling is that as long as a user-generated content site complies with the procedures specified in the DMCA, including promptly responding to takedown requests, it doesn't need to worry about liability if users upload infringing material without its knowledge. A site is not required to actively look for infringing material, or to implement filtering technologies to prevent it from being posted in the first place.

Unfortunately, even if a company is in the clear legally, major content companies can still try to destroy it with protracted litigation. The Veoh decision will make that tactic a little bit harder by giving future defendants a clear precedent to cite. But abusive litigation tactics like UMG's may continue to be a problem.

The ruling represents a victory for the Electronic Frontier Foundation, which filed a brief supporting Veoh in the case. EFF's Parker Higgins called the ruling a "big win for safe harbors" in a Thursday blog post.